Global Supply Chain Issues Impact Container Shipping
Businesses in various industries have been negatively impacted by the global supply chain challenges caused by the pandemic. The container shipping industry, one of the most heavily affected, experienced an increase of 78% in China-to-US transit times since September 2019. Shipping rates have increased more than five-fold in the last year, with a 40-foot ISO container between the Chinese east coast and U.S. west coast casting upwards of $20,000 per container. The Producer Price Index for manufacturing increased 12% since the end of 2019, and retailers like Walmart and Target continue to stock more inventory to mitigate supply chain constraints.1
Chemical Recycling Provides A Solution To Plastic Pollution
The adoption of circular recycling has become a focus for plastics manufacturers as single-use items continue to pollute the planet. Increased public awareness for recycling has resulted in the development of new technologies, including chemical recycling, which will come to market in the coming months. Switching to chemical recycling should not be difficult for plastics manufacturers since circular plastics would not alter the business model substantially. Plastics manufacturers may also benefit from increased demand from eco-friendly consumers. Major players in the industry like ExxonMobil or Eastman Chemical have already started spending hundreds of millions of dollars on chemical recycling initiatives because of the changing regulatory and market environment.2
Used Car Prices Reach Record Highs
The automotive market has experienced significant demand for used car prices following the pandemic. Since September of last year, The Manheim U.S. Used Vehicle Value Index has increased by 27.1%, with a monthly increase of 4.6% in September 2021 alone. Price surges are a result of dealers struggling to find product to sell due to supply chain issues and semiconductor shortages. Some leased cars can be sold for more than their buyout value causing many owners to consider selling for a profit. It is expected that the price surges for vehicles will likely remain inflated as demand and supply chain issues remain.3 4
The Semiconductor Shortage Worsens
Supply of semiconductors continues to fall short of soaring global demand as a new wave of delta-variant cases impacts production facilities in Southeast Asia. The shortage won't likely end until 2023 or later and will likely cost the auto industry $450 billion in global sales from the start of the crisis to the end of 2022. Toyota was forced to slash production at 14 factories in Japan over a lack of semiconductors this month, and Ford said its U.S. sales declined by 33% in August compared with a year ago. Chip factories plan to boost their production capacity by 16% by the end of 2022, after an 8% increase in early 2020. Global spending on semiconductor manufacturing equipment is predicted to grow by more than 30% to $85 billion this year. 5
Coal Stocks Rise As Demand Continues To Rebound
Coal producers will likely produce significant free cash flows in the second half of 2021 and 2022. Demand for the commodity from power producers and steelmakers has been rebounding since the beginning of the pandemic due to the rising prices for natural gas and expectations of increased infrastructure spending. The U.S. Energy Information Administration predicted that total electricity generation provided by coal would increase from 20% in 2020 to about 24% in 2021, with coal production increasing approximately 66 million tons to a total of 601 million in the same period. U.S. coal producers are likely to net more than $1 billion in cash flow during the second half of 2021 and through 2022. This is in comparison to less than $100 million generated during the first half of 2021, which enables them to reduce debt, allowing the industry to reduce its approximate $5 billion in debt by one-fifth to one-fourth.6
Construction Boom Could Bode Well for Caterpillar
Leaders in both the U.S. and Europe feel the need to address climate change. Low interest rates of these countries are causing these countries' leaders to look at legislation surrounding infrastructure and clean energy. Caterpillar stock rose 6.1% in early August as the U.S. passed a $550B infrastructure bill. While this indicates recovery, UBS analysts say this is no typical recovery. Although COVID-19 devastated global supply chains, UBS research analysts argue that much of the developed world appears ready for a “multiyear construction binge.” Every $100B of additional U.S. construction spending could add 60 cents to Caterpillar’s earnings per share.7
National Paper Shortage Negatively Impacts Consumers And Businesses
Due to the labor shortages in manufacturing plants, the supply chain disruptions for paper products have caused prices to skyrocket for consumers. An estimated 2.5 million metric tons of North American printing and writing paper capacity is offline since the start of last year, putting the current capacity at about 4/5 of 2019 levels. Importing is not a viable solution since the shortage is a global issue. The lack of supply caused U.S. imports of paper and paperboard by volume to fall 9.7% last year. Paper and paper products have seen significant price increases, with average prices increasing 16% this summer. Some paper producers expect further increases due to the current tight market.8
Oil Reaches Three-Year High Due To Global Energy Shortage
Brent Crude Oil recently hit $80 a barrel, its highest price in nearly three years, with U.S. crude futures up 1.2% at $76.36 a barrel, putting them on track to close at their highest in three years. Increased prices are due to expectations that alternative energy sources like natural gas and coal will fall short of production needs. The Chinese government’s push to slash emissions is an additional factor attributing to further oil price increases. The recent hurricane in the Gulf of Mexico has resulted in cumulative losses of 30 million barrels of crude oil, with losses expected to reach 55 million before production is restored. Demand is expected to continue rising as the Northern hemisphere heads into the winter months. Analysts have significantly raised their oil price forecasts, with Goldman predicting $90 a barrel for Brent Crude Oil, and futures for U.S. natural gas jumped 6.7% to $6.11 per million British thermal units, which put the contracts on track for their highest settlement since February 2014. 9
Largest Transactions Closed
- Navistar International Corporation
- Dusk Inc.
- RV Group of Airxcel, Inc.
- Thor Industries, Inc.
- 301,000 Acres of East Texas Timberlands of TexMark Timber Treasury, L.P
- Third Swedish National Pension Fund
- Gateway Plastics, Inc.
- Silgan Holdings Inc.
- Sawmill Operations located in United States
- Interfor Corporation
- Hannibal Industries, Inc.
- Nucor Corporation
- Advanced Drainage Systems, Inc.
- Canada Pension Plan Investment Board
- Barletta Boat Company, LLC
- Winnebago Industries, Inc.
Other Financial Buyer Transactions Closed
- Jackson Paper Manufacturing Company
- H.I.G. Capital, LLC
- GreenTech Environmental, LLC
- City Capital Ventures, LLC
- Arrowhead Engineered Products, Inc.
- Genstar Capital, LLC
Other Strategic Buyer Transactions Closed
- Fetch Robotics, Inc.
- Zebra Technologies Corporation
- 145,000 Acres of Timberlands in the North Cascades Region of Washington
- Hampton Resources, Inc.
- Unicep Packaging, LLC
- Silgan Holdings Inc.
- ATI Industrial Automation, Inc.
- Novanta Corporation
- KushCo Holdings, Inc.
- Greenlane Holdings, Inc.
- Substantially all the assets of Westside Building Material
- GMS Inc.
- Pacific Pipe Company, Inc.
- Core & Main LP
- East Chicago Machine Tool Corporation
- Kadant Inc.
- Enhanced Energy Group LLC
- Caterpillar Inc.
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes